Financial Services Regulatory Risk Practice
The Servicemembers Civil Relief Act and
Other Servicemember Protections
Do you offer financial products or services to
military servicemembers and their families?
If so, then it has become increasingly
critical to understand the protections
provided to servicemembers under the
Servicemembers Civil Relief Act of 2003
(SCRA), the Military Lending Act of 2007
(MLA) and the Federal consumer financial
laws, such as the unfair, deceptive,
or abusive acts or practices (UDAAP)
provisions of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
1 |The Servicemembers Civil Relief Act and
Servicemember Protections
The Department of Justice (DOJ), the Department of Defense
(DOD), the Federal Trade Commission (FTC), the Consumer
Financial Protection Bureau (CFPB) and the Federal Prudential
Banking Regulators (including the Office of the Comptroller of
Currency, the Federal Deposit Insurance Corporation, and the
Federal Reserve Board, along with the National Credit Union
Administration) are actively concerned with servicemember
protections. The Prudential Banking Regulators are tasked with
enforcing servicemember protections on banking products
offered by the banking entities under their jurisdiction and the
affiliates of those entities. The CFPB enforces servicemember
protections on large banks and certain nonbank providers of
consumer financial products and services, such as auto
finance companies, debt collection agencies, and private
mortgage companies, among others. The FTC is tasked with
enforcing servicemember protections on FTC-supervised
organizations, which in some cases may overlap with the
CFPB. The Federal Prudential Banking Regulators, the CFPB,
and the FTC often refer cases to the DOJ for enforcement or
work in coordination with the DOJ on enforcement actions.
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What is the Servicemembers Civil Relief Act?
Formerly known as the Soldiers and Sailors Civil Relief
Act, the SCRA was introduced to provide protections
to servicemembers, including Reservists and National
Guardsmen, who have been called to active duty.
The SCRA covers any member of the Army, Navy, Air Force,
Marine Corps, or Coast Guard who is on active duty as
well commissioned officers of the Public Health Service
or the National Oceanic and Atmospheric Administration
on active service. The SCRA provides eligible active duty
servicemembers certain financial protections, or benefits, on
loan and lease obligations, such as credit card debt, mortgages,
and auto finance loans, incurred by the servicemember before
entering military service. These benefits include a maximum
interest rate (currently 6 percent), including all fees considered
part of interest, while on active duty and for a specified period
after the end of that duty. Additionally, the SCRA offers
protections to eligible servicemembers against proceedings
involving default judgments and against foreclosure or
repossession, subject to specific conditions. The SCRA also
provides certain protections to a servicemember’s spouse
and dependents.
What is the Military Lending Act (MLA)?
The MLA provides financial protections for servicemembers
and their dependents on certain extensions of credit initiated
while the servicemember is on active duty, such as certain
payday, vehicle title, and tax refund anticipation loans.
The current protections include a 36 percent annual interest
rate cap, known as the Military Annual Percentage Rate
(MAPR), which includes most fees and credit insurance
premiums on covered transactions. It also prohibits certain
credit features, such as prepayment penalties, and renewals,
refinancings, or consolidations (unless the terms benefit the
2 |The Servicemembers Civil Relief Act and
Servicemember Protections
borrower). The MLA requires lenders to provide disclosure
of the payment obligations and interest rates both orally
and in writing prior to the loan being originated. Additionally,
the MLA prohibits lenders from securing a loan with a
personal check, access to a bank account (such as an ACH
authorization), or title to a personal vehicle, or from requiring
servicemembers to pay with their military allotment. It also
prohibits any waiver of a borrower’s legal rights.
What is the role of Unfair, Deceptive or Abusive Acts or
Practices (UDAAP)?
The increasing pace with which the consumer financial
services market is being changed by new products, delivery
mediums, and payments systems heightens the risks to
consumers of confusion and financial harm. Protections
provided to active duty servicemembers and their families can
be unique and complicated. Through enforcement of UDAAP
violations, which are identified largely through consumer
complaints, regulatory agencies seek to mitigate gaps in
consumer protection coverage where consumers, including
servicemembers, may be unfairly or unreasonably taken
advantage of. UDAAP also helps protect consumers, including
servicemembers, from being harmed by bank or nonbank
providers of consumer financial products and services that
may engage in certain prohibited lending practices, such as
misleading or false advertising, hidden or inflated fees and
charges, and confusing or inaccurate disclosures.
Why should you be concerned?
Due to increased scrutiny of servicemember protections by the
DOD, the DOJ, the Federal Prudential Banking Regulators,
the CFPB and the FTC, along with the heightened awareness
in the marketplace, bank and nonbank providers of consumer
financial products and services, as well as their affiliates
and third-party service providers, are all facing growing and
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KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. NDPPS 340453
significant risks for practices that could potentially cause
financial harm to servicemembers and their families. In turn,
noncompliance with servicemember protections, such as
those provided by the SCRA and the MLA, or violations of the
Federal consumer financial laws or the UDAAP prohibitions
present significant risks to banks and nonbanks, including:
• Financial penalties including civil money penalties and possible
restitution payments associated with violations of law
• Lawsuits filed against the bank or nonbank provider and/or its
third-party service providers
• Individual liability including personal fines and criminal charges
• Reputational harm
–– Loss of customers
–– Difficulty attracting new customers
• Increased compliance costs
• Noncompliance with other consumer financial rules
and regulations
• Vendor management oversight (third-party providers/
sub‑servicers) challenges and issues
Taking the lead when cutting through the complexity of
the SCRA, MLA and other servicemember protections and
how KPMG can help
We have deep industry and regulatory knowledge that,
combined with the processes, methodologies, and tools we
have developed, enable us to help both bank and nonbank
3 |The Servicemembers Civil Relief Act and
Servicemember Protections
organizations understand and comply with the complexity of
the consumer protections available to servicemembers and
their families. We can provide organizations with a number of
services that can help to reduce the risks of violations of the
SCRA, MLA, or other Federal consumer financial laws. We
have in-depth experience that comes from conducting reviews
of servicemember protections provided by the SCRA and MLA
as part of loan servicing reviews for large financial institutions
including many banks and nonbank organizations.
Based on our extensive experience and understanding of the
SCRA, MLA, and servicemember protections, KPMG can help
by providing the following services:
• Review of SCRA and MLA compliance using a multi-phased
testing and review process, including:
–– Reviewing policies and procedures for both benefits and
protections,
–– Identifying and testing the design and effectiveness of
SCRA and MLA processes and controls,
–– Identifying SCRA and MLA-relevant populations,
–– Testing processes for intake of servicemember requests
for SCRA benefits and application of benefits, as well as
the intake and resolution of servicemember complaints,
–– Testing benefit calculations, and;
–– Reviewing and testing protection activity
(i.e., foreclosures, judgments, repossessions)
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the
KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. NDPPS 340453
• Tailored reviews to fit multiple lines of business and third parties
as well as to assist clients when they respond to enforcement
actions such as consent orders from regulatory agencies.
• SCRA and MLA process reviews to identify potential gaps
and suggest improvements to the process from intake to
de-enrollment for both benefits and protections.
• Internal Audit assistance in developing a sustainable audit
program to help ensure ongoing compliance with the SCRA.
KPMG is also prepared to assist in developing a proactive
approach to SCRA, MLA, and other servicemember protection
controls associated with the application of servicemember
benefits as part of the lending, servicing, and consumer
complaint processes, including prompts for the necessary
disclosures and actions related to a consumer’s status as an
active duty servicemember.
Finally, it is important to note that compliance alone is no longer
sufficient and that bank and nonbank providers of consumer
financial products and services must have compliance
management systems (CMS) that ensure compliance, but also
reflect the spirit of the laws and focus on fair lending and
responsible banking as well as treating customers fairly and with
respect – throughout the life of each financial product or service.
KPMG can assist with conducting UDAAP reviews across
multiple business lines to help ensure that appropriate policies,
procedures, and controls are in place for different products and
services to protect servicemembers.
For more information on how KPMG can help you cut
through the complexity regarding servicemember
protections and our consumer protection services,
please contact:
Amy Matsuo
Principal
Financial Services Regulatory Risk Enterprise and
Consumer Compliance
T: 919-380-1509
E: [email protected]
Carolyn Greathouse
Principal
Financial Services Regulatory Risk Enterprise and
Consumer Compliance
T: 636-587-2844
E: [email protected]
Scott Cohen
Managing Director
Financial Services Management Consulting
T: 973-912-6320
E: [email protected]
Todd Semanco
Managing Director
Financial Services Regulatory Risk Enterprise and
Consumer Compliance
T: 412-232-1601
E: [email protected]
The information contained herein is of general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavor to provide accurate and
timely information, there can be no guarantee that such information is accurate as of the date it is
received or that it will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the particular situation.
Certain of the Advisory services described herein are not permissible to KPMG audit clients and
their affiliates.
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